Word-of-Mouth and Referral Marketing Blog

How To Improve Ecommerce – Better Incentive Structures for Win-Wins

Here are two questions that keep us up at night:

1: SELLERS: How do you increase your sales while remaining respectful to your would-be buyers?

It’s a big question with an entire spectrum of answers, depending on which part of the funnel you’re concerned about. Do you need to increase the amount of traffic you’re getting to your site? Do you need to improve the conversions of the traffic you’re getting?

Your conversion rate is affected by the quality of your traffic, so you definitely want good quality traffic coming to your ecommerce site.

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.” – John Wanamaker, marketing pioneer from the 1920s

Here’s what we’ve learnt: The best traffic you could possibly ask for are the friends and peers of your existing customers. These people start off already more receptive to what you’re selling.

2: BUYERS: How do we make good decisions when the complexity of the marketplace is greater than what any individual can make sense of?

We began to answer this question with Sharing Is LearningWe have to share information with one another.

(Full infographic available at HubSpot)

We already do this. We ask our friends and family for recommendations that heavily influence our purchasing decisions. Multiple studies have consistently shown that we trust them more than advertising. We even trust strangers more than advertising.

Interesting superstructures have emerged to help us do this at larger scales. Online sites have sprung up for consumers to review every possible imaginable product or service.  Search allows navigation of that information. And all of this converts better than traditional advertising, and at a lower cost.

Here’s our minor epiphany:

Both questions of how to sell and what to buy are the result of the same problem, which is the imperfect routing of information.

  1. Sellers can’t sell to potential customers who don’t know them.
  2. Buyers can’t buy the best product to fulfill their need if they don’t know about it.

The challenge is to get the right information to the right person.

If the problem can be described as the imperfect routing of information, then all solutions to the problem are in pursuit of a more connected and better-informed marketplace. Both buyers and sellers will make better decisions if the information available is reliable and useful.

Sounds too idealistic?

Sure it does. It’s the holy grail. Google is working on it, from a search perspective:

“The perfect search engine would understand exactly what you mean and give you back exactly what you want.” – Larry Page

The perfect ecommerce marketplace is one where all sellers can effectively reach their entire target market, and all buyers can find the specific product that fulfill their needs. Defining the end goal is the easy part. The solution, or “how do we go from here to there”- that’s the challenge.

It’s all about the right incentives.

People have always been sharing information, but it takes time and energy. It’s always been done in a haphazard, ad-hoc manner. The referral depends on happenstance. It’s unlikely that anyone will go through the trouble of sharing every detail of every last purchase with every last peer.

The unfortunate consequence is that consumers have limited access to valuable information from each others’ experiences, and end up spending more time and energy to navigate the marketplace than otherwise necessary.

Here at ReferralCandy, we seek to create conditions that encourage the spread of valuable information for and by consumers. We do this by creating an incentive for individuals to refer products to their peers. Retailers are willing to bear the cost of this incentive, because it means more sales for them.

More sales for retailers, less time and energy expended by consumers. A sweeter marketplace for all.

_____

Notes:

[1] If you’re interested in learning more about how search changes things, you should read Chris Anderson’s The Long Tail.

[2] It can be fun to extend the Sweeter Marketplace idea to marketplaces of all kinds- the information/knowledge market, the dating market, etc. A sweeter marketplace is a better informed marketplace. Consider dating: Imagine being able to reach every single person who might be possibly interested in you, and communicating to them effectively just how awesome you are. Of course, romantic relations are far, far more complex than commerce, which is why we’re working on the latter problem. For now.

In his essay “How To Start A Startup“, Paul Graham described how “dating sites currently suck far worse than search did before Google,” and ” Online dating is a valuable business now, and it might be worth a hundred times as much if it worked.” He also described how Y Combinator would like to fund a good dating startup. It’s the same central idea. Improved information routing.

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Visakan Veerasamy

Visa is ReferralCandy's former Blog Editor [2013–2018]. He also co-founded Statement.sg, a fashion ecommerce label selling witty t-shirts. He's mildly Internet-famous for his elaborate Twitter threads. He hopes to enjoy a glass of scotch onboard a commercial space flight someday.

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